Guild acquires Residential Mortgage Services following strong Q1

Guild Holdings put an exclamation point on a strong first quarter by announcing a deal to acquire Residential Mortgage Services, a move designed to expand the mortgage lender’s national retail presence.

In the first quarter, Guild more than doubled its net income compared to the last three months of 2020, propelled by growth in originations and gain-on-sale margins. With Guild’s purchase activity up, the timing appeared right for the $196.7 million acquisition of the Portland, Maine-based lender, which shares a similar profile to Guild in that it is weighted toward purchases in the retail channel.

“In essence, we are doubling down on the purchase market with the retail channel, which we believe will drive more consistent earnings and more attractive gain-on-sale margins across interest-rate cycles,” said Terry Schmidt, president of Guild Holdings, in the company’s earnings call.

RMS is Guild’s seventh acquisition since 2008. Guild CEO Mary Ann McGarry said similarities between the two companies’ business models would mutually benefit both lenders. In addition to its purchase focus via the retail channel, RMS has a strong network in New England and the Mid-Atlantic — areas where Guild, headquartered in San Diego, has no presence.

“RMS’s impressive leading position in the Northeast will extend and complement our geographic footprint into key markets, thereby meaningfully enhancing our prospects for growth,” McGarry said.

By leveraging Guild’s in-house servicing capabilities, technology and expertise, RMS will be better positioned to extend the length of client relationships and capture repeat business,” she added.

Guild will pay approximately $196.7 million, consisting of 91% cash and 9% stock, with the transaction expected to close in the third quarter. RMS management and key personnel will continue to run the company, while Guild adds 70 branches and 250 loan officers to its network. The combined 2020 retail volume of Guild and RMS would have generated $42 billion of retail-channel originations last year and made it the seventh largest nonbank lender. (As a stand-alone enterprise, Guild sat in ninth place).

For the quarter, Guild recorded net income of $160.6 million, up 107% from $77.7 million at the close of the fourth quarter in 2020. At the same time a year ago, Guild had posted a $13 million loss. On an adjusted basis, the totals came in at $106.4 million for the quarter, compared to $89.5 million in the fourth quarter and $57.9 million year-over-year.

Net revenue for the quarter was $526.2 million, increasing from $454.2 the previous quarter, and up from $170.2 million at the end of first quarter last year.

Diluted earnings per share equaled $2.67, or $1.77 adjusted, compared to $1.29 and $1.49 last quarter, when Guild became a publicly-traded company.

The positive first-quarter numbers led Guild to offer a special dividend of $1.00 per share to be awarded later this month.

Guild’s originations segment took in $160.1 million in net income, compared to $154.5 million the previous quarter. That led to an increase in the gain-on-sales margin up to 457 basis points, a 9% year-over-year gain. The margin stood at 436 at the end of the fourth quarter and was up from 418 at the same point in 2020. Purchase loans accounted for 37% of in-house originations.

Net income from Guild’s servicing segment improved to $67.1 million, compared to losses in the fourth quarter of $24.5 million when it was hit by fair-value adjustments to its mortgage-servicing rights, and of $79.3 million a year ago.

Shares of Guild Holdings initially popped in trading after the morning’s news, before closing at $14.60, up 2.8% for the day.

— Brad Finkelstein contributed reporting to this story